INTEREST OF AMICUS
CURIAE
The energy industry has, of late, been in the headlines
for all the wrong reasons. Indeed, the industry's scandals,
system failures, and deregulation debacles have been profoundly
disturbing. Thankfully, Wisconsin's energy consumers have
been insulated from such disasters through the state's longstanding,
comprehensive framework of public utility regulation. Alliant
Energy Corporation ("Petitioner" or "Alliant"),
however, seeks to upset Wisconsin's carefully crafted structure.
The Energy Industry Amici have a strong interest in ensuring
that Wisconsin's overall regulatory scheme remains intact.
Petitioner attacks the constitutionality of certain provisions
of the Wisconsin Public Utility Holding Company Act ("WUHCA"),
Wis. Stat. § 196.795. WUHCA authorizes the formation
of holding companies, like Alliant, that can own both public
utilities and non-utility corporate affiliates. It also contains
key protections to ensure that such companies properly manage
and maintain the public utilities that supply Wisconsin's
consumers with reliable and reasonably priced energy. If those
provisions are struck down, the state's utilities, municipal
power purchasers, electric cooperatives, utility workers,
and ultimately, all ratepayers – residential, commercial
and industrial – will be hurt. The Energy Industry Amici:
the Citizens' Utility Board; Municipal Electric Utilities
of Wisconsin; Dairyland Power Cooperative; Wisconsin Federation
of Cooperatives; Wisconsin Merchants Federation; Wisconsin
Public Power, Inc.; Wisconsin Industrial Energy Group; International
Brotherhood of Electrical Workers-Locals 2304 and 2150; and
ratepayer George Edgar have actively participated in this
case from the outset.
Each entity within the Energy Industry Amici has a vital
interest in the integrity and effectiveness of the state's
public utility regulatory structure. The Seventh Circuit's
ruling protects that interest, recognizing Wisconsin's long
history of effective public utility regulation and the continued
need for meaningful statewide regulatory oversight of public
utilities and public utility holding companies. Reversal of
that ruling would undermine the scope of that oversight and
have devastating effects on Wisconsin and its citizens.
SUMMARY OF ARGUMENT
The challenged provisions of the WUHCA are part of a framework
of regulation, first developed in 1907, that recognizes public
utilities for what they are: essential public services. Traditionally,
regulation of utilities has been a quintessential matter of
local concern. To be sure, the Wisconsin legislature did not
take lightly the State's regulatory framework. WUHCA's provisions
delicately and successfully balance the interests of utilities,
their customers and the public. Petitioner now seeks to disturb
this carefully crafted regulatory scheme. But, as the Seventh
Circuit correctly concluded, there are no legally sustainable
grounds for doing so.
The Seventh Circuit's Commerce Clause analysis, and its
ultimate rejection of Petitioner's constitutional challenge
to WUHCA, was based squarely on this Court's precedents. Having
no controlling case law to cite or meritorious grounds on
which to base its challenge to the law, Petitioner frames
a plurality opinion favorable to
its WUHCA Commerce Clause challenge as precedent.
Petitioner then selectively chooses statements from the Seventh
Circuit's decision and relies on inapposite case law in an
attempt to support its assertion that per
se Commerce Clause scrutiny is appropriate in this
case. Petitioner ignores the very heart of the Seventh Circuit's
ruling: its thorough discussion of the State's strong interest
in protecting Wisconsin's energy consumers from the "dangers
inherent in the mere existence of utility holding companies."
(Pet. App. at 34a).
The Energy Industry Amici submit that Petitioner's description
of the law and record of this case is erroneous at best, and
disingenuous at worst. Petitioner's misstatement of the most
fundamental principles of Commerce Clause analysis, mischaracterization
of the nature of the Seventh Circuit's decision and overstatement
of that decision's potential effects on interstate commerce
highlight the weakness of Petitioner's case. As the Seventh
Circuit correctly held, the Commerce Clause simply does not
provide Petitioner a right to the wholesale regulatory exemptions
it seeks. As hard as it may try, Petitioner cannot obtain
deregulation of Wisconsin utility holding companies by cloaking
itself in the Commerce Clause.
ARGUMENT
I. THE SEVENTH CIRCUIT CORRECTLY APPLIED THIS
COURT'S PRECEDENT.
A. The Pike
Balancing Test Applies Here.
Review of the Seventh Circuit's decisions and the case law
cited therein confirms that the court, in finding WUHCA's
provisions constitutional, correctly performed the two-tiered
Commerce Clause analysis firmly established by this Court.
Indeed, the Seventh Circuit closely and carefully reviewed
the challenged regulations, determined that those regulations
have indirect and evenhanded incidental effects on interstate
commerce and extraterritorial transactions and then applied
the corresponding balancing test adopted in Pike
v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). (Pet.
App. at 30a-36a). Upon balancing the State's interest in protecting
Wisconsin consumers from utility holding company abuses against
the regulations' burden on interstate commerce, the court
found the State's interest to be superior. Id.
at 36a. The Seventh Circuit performed every step of the analysis
just as this Court requires, and the outcome was correct.
Petitioner argues that prior decisions of this Court mandate
the per se
invalidation of every state regulation that has any extraterritorial
effect whatsoever, and that the Seventh Circuit's decision
conflicts with that principle. (Pet. at 14). That characterization
of Supreme Court precedent is simply wrong. As the Seventh
Circuit stated in its decision on Alliant's petition for rehearing,
en banc, "this principle is
not established by the cases [Petitioner] cite[s] and is contradicted
by other authority." (Pet. App. at 2a.)
The most fundamental flaw in Petitioner's position is its
reliance on a plurality opinion authored by Justice White
in Edgar v. MITE Corp., 457 U.S. 624 (1982), and its assertion
that the plurality opinion was adopted later by this Court
in Brown-Forman Distillers Corp. v. New
York State Liquor Auth., 476 U.S. 573, 579 (1986).
(Pet. at 11). In fact, the plurality opinion, which said that
"[t]he Commerce Clause also precludes the application
of a state statute to commerce that takes place wholly outside
of the State's borders, whether or not the commerce has effects
within the State," is not a definitive holding of this
Court. Edgar, 457 U.S. at 642-43.
Consequently, the Seventh Circuit was not obligated under
the rationale of the plurality statement.
Moreover, while this Court did in Brown-Forman
Distillers cite to Justice White's plurality opinion,
the citation merely was for the well-established proposition
that direct regulation of interstate
commerce is per se unconstitutional.
476 U.S. at 579, 582. That proposition is irrelevant to Petitioner's
challenge: WUHCA's impact on interstate commerce is indirect
and evenhanded. (Pet. App. at 4a).
The other cases relied on by Petitioner contemplate direct
extraterritorial regulation and do not support Petitioner's
assertion that all extraterritorial regulation, direct or
indirect, is per se invalid regardless of that regulation's
benefit to the state. See Healy v. Beer
Institute, 491 U.S. 324, 335-40 (1989).
B. Alliant Quotes The Seventh Circuit Out Of
Context.
Petitioner uses creative editing of the Seventh Circuit's
decision to make the cases it cites on direct extraterritorial
regulation appear to be helpful to its cause. By selecting
specific excerpts and citing them out of context, Petitioner
misconstrues the character of the Seventh Circuit's analysis.
Petitioner is particularly enamored of the "victory"
quote. In its description of the "Proceedings Below,"
Petitioner asserts that "[n]otably, the Seventh Circuit
stated that ‘[w]e have no doubt that the provisions do in
fact impact extraterritorial commerce' and noted that application
of per se scrutiny ‘would mean
victory for [AEC] . . . .'" (Pet. at 4-5). By omitting
the surrounding language Petitioner mischaracterizes the essence
of the Seventh Circuit's reasoning:
We have no doubt that the provisions do in fact impact
extraterritorial commerce (see our examples above); but
we disagree with the proposition that this renders the provisions
per se invalid. To support its
argument Alliant directs our attention to the opinion of
Justice White in Edgar v. Mite
. . . . The language, if controlling, would mean victory
for Alliant; the only problem is that the language . . .
did not draw support from a majority of the Court and is
therefore not the opinion of the Court.
(Pet App. at 31a).
Alliant quotes the fractured "victory" excerpt
again in a footnote later in the petition, but there correctly
acknowledges that the Seventh Circuit rejected Justice White's
analysis because it was only the plurality opinion in Edgar.
(Pet. at 10 n.3). However, in its footnote, Alliant continues
to misleadingly say that the language in Edgar
was adopted in later cases. Id.
As discussed above, when the language was quoted by the majority
of the Supreme Court in later cases, it was for the unremarkable
proposition that direct extraterritorial
regulation is per se invalid. (Pet.
App. at 5a-7a). That proposition is irrelevant because the
regulations at issue here only indirectly and evenhandedly
affect commerce outside of Wisconsin.
II. THE SEVENTH CIRCUIT CORRECTLY RECOGNIZED
THAT UTILITIES AND THEIR HOLDING COMPANIES HAVE NEVER BEEN
ALLOWED TO OPERATE IN THE SAME UNRESTRICTED MANNER AS OTHER
CORPORATIONS.
Petitioner wants to be treated like a non-utility corporation.
The longstanding regulatory framework of the utility industry
at both the federal and state levels, however, precludes such
treatment. Indeed, Petitioner has no constitutional right
to an unrestricted free market – its utility businesses
are, and always have been, regulated in the public interest.
It is no wonder, then, why Petitioner all but ignores the
Seventh Circuit's discussion of the State's significant interest
in protecting Wisconsin ratepayers from utility holding company
abuses. Id. at 8a-9a, 32a-34a.
In its decision, the court correctly recognized that the challenged
aspects of Wisconsin's utility holding company regulation
were enacted, and remain in place, to cure and prevent abuses
and potential abuses that harm investors, utility service
customers and the public interest. As discussed in detail
below, the reasons for regulating utilities and their holding
companies at the state level are the same today as they were
in 1935 when, at the federal level, Congress passed the Public
Utility Holding Company Act ("PUHCA"), 49 Stat.
803, (1935), 15 U.S.C.§ 79, et seq.
A. Federal Regulation.
By the 1920s, public utility holding companies in some states
had formed highly leveraged, complicated structures through
which they controlled public utilities operating in multiple
states. See North American Co. v. Securities
& Exchange Commission, 327 U.S. 686, 690-692 (1946).
While that yielded extremely high profits, it did so to the
detriment of the operating public utilities and utility customers.
"The holding company structure permitted [investment
bankers] to concentrate control of vast utility empires in
a few hands, which led to deception of investors, excessive
rates for consumers, and obstruction of state utility regulation."
See Securities and Exchange Commission - Division of Investment
Management, The Regulation of Public-Utility
Holding Companies 11-12 (June 1995), see also North
American Co., 327 U.S. at 701, (citing Section 1(b)
[Congressional findings] of the PUHCA); id. at 703 n.13 (quoting
the Report of the National Power Policy Committee on Public
Utility Holding Companies, H.R. Doc. 137, 74th Cong., 1st
Sess., at 5).
Because of the complexity and geographic diversity of the
holding companies, states did not have effective regulatory
control over them. In the late 1920's and early 1930's, the
Federal Trade Commission and the House Interstate and Foreign
Commerce Committee sponsored detailed studies of the public
utility industry. They found a pattern of widespread abuses,
many of them "almost inherent" in the holding company
system, that were detrimental to both investors and consumers.
The Regulation of Public Utility Holding
Companies, supra at 13.
The abuses and potential abuses of monopoly power and the
holding company structure led directly to enactment of the
Public Utility Act in 1935. Title I of that Act is PUHCA.
Title II, the Federal Power Act ("FPA"), subjected
electric utilities engaged in interstate transactions to the
jurisdiction of the Federal Power Commission (now the Federal
Energy Regulatory Commission ("FERC")). See Charles
F. Phillips, Jr., The Regulation of Public
Utilities, 625-635 (3rd ed. 1993)(discussing history
of Act in detail).
PUHCA gave the Securities and Exchange Commission ("SEC")
the authority to reorganize and regulate public utility holding
companies. PUHCA is arguably the most comprehensive regulatory
measure ever applied to American business. William G. Shepherd
and Clair Wilcox, Public Policies Toward
Business 325 (6th ed. 1979). Under the FPA and PUHCA,
the FERC and the SEC regulate the activities of holding companies
in a variety of areas - including rates, financial and operational
reporting requirements, securities issuance, disposition of
utility assets, mergers and acquisitions, transactions with
affiliated companies, and corporate reorganizations - in furtherance
of the public interest. PUHCA has survived several constitutional
challenges. See, e.g., North American
Co. v. Securities & Exchange Commission, 327 U.S. 686
(1946).
Yet, abuses and potential abuses by public utilities and
their holding companies continue. The chaos in California's
energy markets spawned a number of lawsuits and investigations
on that very subject. See, e.g., State
Courts Can Hear Gouging Suits, Judge Rules, S.F. CHRON.,
August 3, 2001, at A5; Laura Goldberg, Energy
Troubles Spark Lawsuits, HOUS. CHRON., June 20, 2001,
at A1. For example, while Pacific Gas and Electric Company,
a utility, was in Chapter 11 bankruptcy, its holding company,
PG&E Corporation, stood accused of siphoning off billions
of dollars in earnings from the utility and transferring that
money to unregulated subsidiaries where it was out of reach
and unavailable to help the utility continue to serve its
customers. See Laura M. Holson, California's
Largest Utility Files for Bankruptcy, N.Y. TIMES, April
7, 2001, at A1.
With diversification, utility holding companies have become
involved in non-energy and non-regulated businesses. The Seventh
Circuit recognized that cross-subsidization, which arises
when a holding company uses its utility subsidiaries, directly
or indirectly, to support unregulated, non-utility ventures,
almost inevitably arises at the utility level from diversification.
That problem necessitated the WUCHA provisions now challenged.
(Pet. App. at 32a-33a).
B. State Regulation.
The states, including Wisconsin, have always had - and used
- the broad authority under their police powers to regulate
public utilities and holding companies. This Court has stated
that "the regulation of utilities is one of the most
important of the functions" of state governments under
the police power. Arkansas Electric Coop.
Corp. v. Arkansas Public Service Comm'n, 461 U.S. 375,
377 (1983).
Wisconsin's regulation of all public utilities started in
1907. See Wisconsin Blue Book 477 (2003-2004). Since 1931,
the Public Service Commission of Wisconsin ("PSCW")
has had the administrative authority to oversee Wisconsin
public utilities, including many of the activities of public
utility holding companies. Id.;
see Wis. Stat. §§ 15.79 and 196.02(1); see also
Wisconsin Power & Light Co. v. Public
Service Comm'n, 148 Wis. 2d 881, 891, 437 N.W.2d 888,
892 (Wis. App. 1989) (citations omitted). Public utility companies
operating in Wisconsin have legal monopolies to provide electric
service within a service territory designated by the State.
See Wis. Stat. §§ 196.49 and 196.495. In exchange
for those monopolies, the PSCW requires the utility companies
to provide reliable and reasonably priced utility services.
See Wis. Stat. §§ 196.02(1)
and 196.03.
Twenty-three years ago, there were no utility holding companies
in Wisconsin. Debate over public utility diversification and
holding companies for utilities began in Wisconsin in April
1980, when Wisconsin Gas Company formed a parent company known
as WICOR. See J. Robert Malko and George R. Edgar, Energy
Utility Diversification: Its Status in Wisconsin, Public
Utilities Fortnightly, Aug. 7, 1986 at 4. Wisconsin Gas established
WICOR without the PSCW's approval, asserting the Commission
had no jurisdiction over the formation of public utility holding
companies. Id.
Meanwhile, Wisconsin Electric Power Company and Wisconsin
Power and Light Company ("WPL"), were evaluating
the formation of their own holding companies. Id.
In September 1981, before either of those utility companies
formed a holding company, the PSCW ruled that it had jurisdiction,
pursuant to Wis. Stat. § 196.79, over utility holding
company formation. Shortly thereafter, the PSCW promulgated
the first administrative rules for public utility holding
companies. Id.
By 1983, the PSCW itself had proposed holding company legislation,
but the Wisconsin legislature narrowly rejected it. After
that defeat, a number of utilities made a concerted effort
to demonstrate the need for diversification. Id.
at 5. On November 19, 1985, 1985 Wis. Act 79 - the Wisconsin
Public Utility Holding Company Act - allowing and regulating
utility holding companies became effective. See Douglas
W. Hawes, Utility Holding Companies § 4.03[20]
at 4-50 (1987).
The goals of the legislation are found in the Act's "Findings
and Purpose":
(3) The state has a legitimate interest in regulating
the structure of nontelecommunications public utilities
and their holding companies to ensure the ability of the
public utilities to continue to provide safe, reliable and
reasonably priced service to consumers.
(4) The maintenance of a financially healthy nontelecommunications
public utility is contingent upon the maintenance of an
economically healthy service area.
(5) The public interest and the interest of investors
and consumers can be benefitted if public utility holding
companies, in the service territories of their public utility
affiliates or in this state:
(a) Conduct substantial business activities.
(b) Attract new businesses.
(c) Expand existing businesses.
(d) Provide investment capital for new business ventures.
(e) Otherwise directly or indirectly promote employment
and commerce.
1985 Wis. Act 79, § 1.
In short, WUHCA was designed to maintain the financial health
of the utilities by encouraging economic development in the
utility's own "service area" that would result from
utility diversification while, at the same time, preserving
the State oversight necessary to maintain safe and
C. Petitioner's Corporate History.
Petitioner did not always believe provisions of WUHCA to
be unconstitutional. To the contrary, as shown by its own
history, Petitioner accepted the State's regulation as a condition
of its very existence and, consequently, cannot challenge
parts of the regulatory framework that it now finds "unsuitable"
to its current business profile and pursuits. (Merger Order,
PSCW Docket No. 6680-UM-100 (November 4, 1997)). Petitioner
appears to have discovered unconstitutional aspects of WUHCA
only after Petitioner, thanks to WUHCA, developed into a large,
multi-state holding company.
On April 30, 1987, the PSCW approved WPL Holdings, Inc.'s
request to become the parent company of WPL pursuant to 1985
Wis. Act 79. Wis. Stat. § 196.795. On November 11, 1995,
WPL Holdings, Inc. entered into a merger agreement with IES
Industries, an Iowa-based public utility holding company,
and IPC, an Iowa-based public utility. Under the terms of
the merger agreement, WPL Holdings, Inc. was the surviving
corporation based in Wisconsin. WPL Holdings, Inc. changed
its name to Interstate Energy and then to Petitioner's current
name, Alliant Energy Corporation. As a result of those transactions,
WPL, IES Utilities ("IES-U") and IPC all became
public utility subsidiaries of Petitioner.
In 1997, the merger received approval from FERC, the PSCW
and the public utility commissions of Illinois, Iowa and Minnesota.
In its order approving the merger, the PSCW reiterated its
authority "to condition the series of interrelated transactions
resulting in the proposed merger upon acceptance by WP&L,
[WPL Holdings, Inc.] and [Petitioner] of the [PSCW's] order
provisions." Merger Order, PSCW Docket No. 6680-UM-100
at 50. Among those "order provisions" was the statutory
asset cap requirement that Petitioner now challenges - a requirement
that limits the percentage of assets that a holding company
may invest in non-utility affiliates. The specific order provision
applicable to Petitioner stated:
The investment in the holding company and nonutility affiliates
shall be limited to 25 percent of the Wisconsin and non-Wisconsin
utility assets of IEC (including WP&L, IPC, and IES-U) for
purposes of s. 196.795(5)(p), Stats.
Id. at 58.
Thus, Petitioner exists solely by virtue of the Wisconsin
statutes that allow utility holding companies to exist and
the PSCW order authorizing the merger - an order that was
specifically premised on the application of the statutory
"asset cap." Accordingly, Petitioners are estopped
from challenging the constitutionality of the statutory and
regulatory system that gives it its existence. See Fahey v.
Mallonee, 332 U.S. 245, 256 (1947) ("[O]ne who utilizes
an Act to gain advantages of corporate existence is estopped
from questioning the validity of its vital conditions.").
Although the Seventh Circuit did not decide the case on estoppel
grounds, it recognized as to the provisions at issue in this
Petition that:
It is not all clear that Wisconsin would have authorized
the formation of public utility holding companies had it
not been for these protective controls. It therefore appears
improper to sever the structural provisions from §196.795(2)
[the provision providing for and authorizing the formation
of utility holding companies]. The fact that the structural
provisions are probably not severable from §196.795(2)
suggests that the reasoning of Fahey would apply to estop
Alliant here.
(Pet. App. at 18a).
III. THE SEVENTH CIRCUIT'S DECISION DOES NOT
HAVE THE BROAD IMPLICATIONS ON THE REGULATION OF INTERSTATE
COMMERCE THAT PETITIONER FORECASTS.
Petitioner asserts that the Seventh Circuit's decision upholding
the WUHCA provisions will not only affect the utility industry,
but will also have far-reaching implications on all businesses
engaged in interstate commerce. (Pet. at 26, 28-29). Its assertion
lacks merit. First, in regard to the utility industry, Wisconsin
did not pass the challenged statutes to isolate itself or
to protect its utility industry from competition on the interstate
market. Rather, Wisconsin enacted the provisions as an indispensable
part of the overall regulatory framework in this State. The
Seventh Circuit correctly ruled that any indirect burdens
on interstate commerce that result from WUHCA do not outweigh
the state's interest in using its police powers to protect
its citizens from holding company abuses.
Second, the Seventh Circuit's decision is consistent with
the decisions made by other federal Courts of Appeal. Both
the Fourth Circuit and the Eighth Circuit Courts have performed
Commerce Clause analyses on regulations similar to those challenged
here, and have explicitly found that any burden on interstate
commerce resulting from those regulations is at most incidental.
The Fourth Circuit, in Baltimore Gas & Elec. Co. v. Heintz,
760 F.2d 1408 (4th Cir. 1985), upheld the constitutionality
of Maryland's holding company law which prohibited non-public
utilities from, among other things, acquiring more than 10%
of a Maryland public utility. In so holding, the Fourth Circuit
noted that the burdens imposed by the law – restricting
the ability to diversify by acquiring nonutility assets and
the ability to secure financing and to exchange corporate
securities – only minimally affected interstate commerce.
Id. at 1425.
Similarly, the Eighth Circuit, in Southern
Union Co. v. Missouri Pub. Serv. Comm'n., 289 F.3d
503 (8th Cir. 2002), applied the Pike
balancing test and upheld a law that required approval from
Missouri's Public Service Commission before a utility serving
Missouri ratepayers could purchase stocks or bonds issued
by any other utility. The Eighth Circuit found that this requirement
passed Constitutional muster, despite its impact on interstate
commerce, because of the importance of State regulation of
utilities and the protection of ratepayer welfare.
The Seventh Circuit's decision in this case is squarely
in line with both Supreme Court and other Circuit Court decisions.
No utility holding company can honestly claim to be surprised
by the court's decision, nor can it be said that the decision
is changing the way those businesses do business. The decision
represented a straightforward and unremarkable application
of firmly established Supreme Court guidance. Most certainly,
the mere application of the longstanding legal principle -
the Pike balancing test - to Wisconsin's
regulation of its utility holding companies will have no implication
for other businesses engaged in interstate commerce.
CONCLUSION
For the foregoing reasons, the Energy Industry Amici respectfully
request that the Petition for Writ of Certiorari requested
by the Petitioner Alliant Energy Corporation be denied.
Respectfully submitted,
Lester A. Pines
Counsel of Record
Rebecca A. Schmidt
Tamara B. Packard
Cullen Weston Pines & Bach LLP
122 West Washington Avenue, Suite 900
Madison, Wisconsin 53703
Counsel for Amicus Curiae
Energy Industry Amici
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